Goerg, In re

• Decision Date: 18 May 1988
• Docket Number: No. 87-8161,87-8161
• Citation: 844 F.2d 1562
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: , 18 Collier Bankr.Cas.2d 1125, 17 Bankr.Ct.Dec. 1251, Bankr. L. Rep. P 72,299 In re Klaus Hubert GOERG, Debtor. Klaus Hubert GOERG, Plaintiff-Appellant, v. Edgardo L. PARUNGAO, Defendant-Appellee.

Page 1562

844 F.2d 1562

56 USLW 2694, 18 Collier Bankr.Cas.2d 1125,

17 Bankr.Ct.Dec. 1251, Bankr. L. Rep. P 72,299

In re Klaus Hubert GOERG, Debtor Klaus Hubert GOERG, Plaintiff-Appellant, v. Edgardo L. PARUNGAO, Defendant-Appellee.

No. 87-8161.

United States Court of Appeals Eleventh Circuit.

May 18, 1988.

Thomas C. Shelton, Kilpatrick & Cody, Robert A. Goldstein, Dennis S. Meir, Allison Wade, Atlanta, Ga., for plaintiff-appellant.

Robert E. Hicks, Hicks, Maloof & Campbell, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before RONEY, Chief Judge, TJOFLAT, Circuit Judge, and CLEMON, ^* District Judge.

TJOFLAT, Circuit Judge:

This appeal presents a question of first impression for this court: whether section 304 of the Bankruptcy Code, 11 U.S.C. Secs. 101-1330, opens United States bankruptcy courts to proceedings ancillary to foreign insolvency proceedings where the entity that is the subject of the foreign proceeding qualifies for insolvency administration under foreign law, but does not fall within the Bankruptcy Code's definition of "debtor." Both the bankruptcy court and the district court in this case answered the question in the negative, holding that a West German bankruptcy trustee was precluded from commencing a section 304 ancillary case because the debtor in the foreign case--an insolvent decedent's estate--did not qualify as a "debtor" under the Bankruptcy Code. We conclude that the courts below misconstrued the eligibility requirements for section 304 relief, and we accordingly reverse.

I.

Heinz Guenter Kaussen, a resident and citizen of the Federal Republic of Germany (West Germany), died in April 1985 owning substantial property in both Europe and North America. Although most of his holdings were located in West Germany, he also owned property in Canada, Ireland, California, and Georgia. At the time of his death, his liabilities exceeded the value of his assets by some $55 million. His business enterprises had been headquartered in Cologne, West Germany, and the vast majority of the estate's creditors are located in West Germany.

Shortly after Kaussen's death, probate proceedings were commenced in the local court of Cologne. That court appointed an administrator who, after determining that the estate was insolvent, petitioned the court to commence bankruptcy proceedings. ¹ On January 24, 1986, the court entered an Order of Adjudication, finding that the estate was insolvent. The court appointed Klaus Hubert Goerg, appellant here, to serve as the bankruptcy trustee and authorized him to take possession of the decedent's property both in Germany and abroad. The adjudication of bankruptcy and the appointment of Goerg as trustee were affirmed by the Cologne Regional Court and the Cologne Higher Court of Appeals. The Higher Court of Appeals specifically held that "[i]n addition to the domestic property, the Debtor's bankrupt estate shall further include the Debtor's property located abroad. The latter, too, shall be placed in custody and used by the Trustee." ²

Meanwhile, upon Kaussen's death, the Probate Court of Fulton County, Georgia had appointed Edgardo L. Parungao, appellee here, to serve as administrator of the Kaussen estate assets located in Georgia. ³ In June 1986, Goerg filed a petition pursuant to 11 U.S.C. Sec. 304 (1982) in the United States Bankruptcy Court for the Northern District of Georgia, seeking to enjoin Parungao from prosecuting the Fulton County probate proceeding. ⁴ Under section 304, a United States bankruptcy court may, upon petition by the official representative of a foreign bankrupt in a foreign insolvency proceeding, enter an order staying the commencement or continuation of any action in the United States against property involved in the foreign proceeding. Id. Sec. 304(b)(1)(A). The bankruptcy court may also stay the enforcement of any lien or judgment obtained against such property, id. Sec. 304(b)(1)(B), and may order that such property be turned over for administration by the foreign court in which the principal bankruptcy case is pending. Id. Sec. 304(b)(2). Finally, the bankruptcy court may order other relief deemed "appropriate." Id. Sec. 304(b)(3). In his section 304 petition, Goerg requested the bankruptcy court to order that the Georgia property be turned over to him for distribution in the West German bankruptcy proceeding.

Based on its interpretation of the language of section 304 and the pertinent definitional sections, the bankruptcy court held that its jurisdiction to entertain section 304 petitions was limited to cases in which the subject of the foreign insolvency proceeding qualified as a "debtor" as that term is defined in the Bankruptcy Code. The bankruptcy court then concluded that an insolvent decedent's estate--the debtor in the foreign insolvency proceeding in this case--did not qualify as a "debtor" under the Code. Accordingly, the bankruptcy court dismissed Goerg's section 304 petition for lack of subject matter jurisdiction. ⁵ In re Goerg, 64 B.R. 321 (Bankr.N.D.Ga.1986). The district court affirmed, and Goerg now appeals.

II.

Section 304 provides as follows:

(a) A case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative.

(b) Subject to the provisions of subsection (c) of this section, if a party in interest does not timely controvert the petition, or after trial, the court may--

(1) enjoin the commencement or continuation of--

(A) any action against--

(i) a debtor with respect to property involved in such foreign proceeding; or

(ii) such property; or

(B) the enforcement of any judgment against the debtor with respect to such property, or any act or the commencement or continuation of any judicial proceeding to create or enforce a lien against the property of such estate;

(2) order turnover of the property of such estate, or the proceeds of such property, to such foreign representative; or

(3) order other appropriate relief.

(c) In determining whether to grant relief under subsection (b) of this section, the court shall be guided by what will best assure an economical and expeditious administration of such estate, consistent with--

(1) just treatment of all holders of claims against or interests in such estate;

(2) protection of claim holders in the United States against prejudice and inconvenience in the processing of claims in such foreign proceeding;

(3) prevention of preferential or fraudulent dispositions of property of such estate;

(4) distribution of proceeds of such estate substantially in accordance with the order prescribed by this title;

(5) comity; and

(6) if appropriate, the provision of an opportunity for a fresh start for the individual that such foreign proceeding concerns.

11 U.S.C. Sec. 304 (1982).

In holding that it lacked jurisdiction to entertain Goerg's section 304 petition, the bankruptcy court engaged in the following analysis. First, it looked to the Code's definition of "foreign proceeding":

"[F]oreign proceeding" means proceeding, whether judicial or administrative and whether or not under bankruptcy law, in a foreign country in which the debtor's domicile, residence, principal place of business, or principal assets were located at the commencement of such proceeding, for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization.

Id. Sec. 101(22) (Supp. IV 1986). Because the definition of "foreign proceeding" makes reference to "the debtor's domicile, residence, principal place of business, or principal assets," the bankruptcy court concluded that its jurisdiction to entertain section 304 petitions was limited to cases in which the subject of the foreign proceeding qualified as a "debtor" under the Code. ⁶ The Code defines a "debtor" as a "person or municipality concerning which a case under this title has been commenced." Id. Sec. 101(12) (1982). "Person," under the Code, "includes individual, partnership, and corporation, but does not include governmental unit." Id. Sec. 101(35) (Supp. IV 1986). The bankruptcy court held that an insolvent decedent's estate is not a "person," and therefore not a "debtor," and that the court was consequently without jurisdiction to entertain Goerg's petition.

In evaluating the correctness of the bankruptcy court's ruling, our first task is to determine whether, as a general matter, the Code's definition of "debtor" excludes insolvent decedents' estates. If we conclude that it does, our task will then be to decide whether that exclusion applies in the context of a section 304 ancillary proceeding.

Before we begin our analysis, we note that Congress has the power to create bankruptcy jurisdiction over the administration of decedents' estates. U.S. Const. art. I, Sec. 8, cl. 4. ⁷ Care should be taken not to confuse the question of the breadth of Congress' bankruptcy power with the so-called "probate exception" to statutory diversity jurisdiction. That exception relates only to 28 U.S.C. Sec. 1332 (1982), ⁸ and has no bearing on federal question jurisdiction, the jurisdiction invoked in bankruptcy cases. Cf. Covell v. Heyman, 111 U.S. 176, 179-80, 4 S.Ct. 355, 357, 28 L.Ed. 390 (1884) (property in custody of state court may be disturbed by federal court "exercis[ing] jurisdiction for the purpose of enforcing the supremacy of the Constitution and laws of the United States"). Owing to the supremacy clause, federal bankruptcy law preempts state law; as one of Congress' enumerated powers, the power to enact bankruptcy laws is limited only by the substantive guarantees contained in the Constitution. Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 589, 601-02, 55 S.Ct. 854, 863, 869, 79 L.Ed. 1593 (1935). Whether Congress has actually exercised its bankruptcy power in a particular area is, of course, a...